Prices in Asia for LNG have reached their highest as Japan and China buy more
The world’s second-largest LNG importer South Korea may buy gas from North America, Australia and Russia to diversify supply and plans to raise power prices to slow domestic demand growth, the Knowledge Economy Minister Choi Joong-kyung said on Tuesday.
Prices in Asia for liquefied natural gas (LNG) have reached their highest this year as Japan and China buy more. Top LNG importer Japan has boosted imports to feed gas plants running hard to compensate for lost power from nuclear reactors shut after the March earthquake and tsunami.
“To cope with any worsening global market conditions in the wake of strengthening safety (standards) and delays in construction of nuclear power, we are preparing long-term measures to secure LNG,” Choi told the Reuters Energy and Climate Summit in an email response to questions.
“We are considering various import sources such as North America, Australia and Russia to diversify import sources from the Middle East and southeast Asian regions that we heavily depend on, although no specific sources are yet set.”
TO HIKE ELECTRICITY RATES “STEP BY STEP”
Despite the risk of adding to inflationary pressures, Asia’s fourth-largest economy plans to slowly increase the country’s electricity tariffs gradually to curb inefficient consumption and slow power demand growth, Choi said.
“Electricity rates are below costs, which has sparked inefficient and excessive consumption,” Choi said, adding South Korea’s annual power consumption growth rate was 5.7 percent from 2002 and 2010.
“Although it is urgent, we are planning to raise the electricity tariffs step by step as the impacts on household budgets and inflation are huge,” he said.
State-run Korea Electric Power Corp (KEPCO) (015760.KS), the country’s monopoly state-run electricity transmission and distribution company, has been hemorrhaging cash as it has not hiked tariffs by as much as input price rises.
South Korea, heavily dependent on energy imports, should raise electricity prices at least 15 percent this year to reflect higher fuel costs and reduce demand, the head of the influential Korea Energy Economics Institute (KEEI) said last month.
The government declared a “war on inflation” earlier this year and has forbidden government-run utilities such as KEPCO from passing increased fuel costs on to end users.
Last month, government data showed annual consumer inflation eased in May to 4.1 percent versus a year earlier, down for the second consecutive month although still above the central bank’s 2-4 percent target band. Inflation set a 29-month high of 4.7 percent in March.
Choi said, however, that he was opposed to taking measures to strengthen the won to contain inflation.
“It is undesirable to artificially adjust foreign exchange rates to curb inflation,” said Choi, who in the past played a role in massive intervention to keep the won cheap. “It is a principle that… the rates should be decided in the market.”
Analysts have expected the government would allow the won to strengthen further to keep inflation under control.
LNG SUPPLY
Asia’s fourth-largest economy expects no problem securing supply despite tight LNG markets, Choi said. The country has already signed deals to meet around 95 percent of LNG demand in 2011, Choi said.
South Korea would meet its remaining requirements from the spot market and with mid- or long-term contracts, Choi added.
Demand for this year may rise a little from last year, he said. South Korea imported 32.6 million tonnes of LNG last year, according to the ministry data.
Most of South Korea’s LNG supplies are on long-term contracts, protecting the country from short-term changes in spot gas markets, he said. South Korea expects the country’s gas inventory to continue to rise ahead of the next winter season, he said.
The top LNG suppliers to South Korea are Qatar, Indonesia, Malaysia and Oman.
Source: Reuters
